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Credit cards are essential in today’s society and while credit cards can be extremely useful and give the individual much more purchasing power than they ever had before, credit cards can easily be abused causing financial hardships and ruin for hundreds of thousands of people each year.

Steps

1

Realize that one of the reasons that credit cards are abused so frequently is that many people that use them don’t truly understand what a credit card is and how they work. Credit cards are unsecured loans. Credit cards allow you to use the bank’s money. Many people that use credit cards think of the balance on their card as their money, when in essence, this is the amount of money that the bank is willing to lend you. Everything that you borrow must be paid back with interest. Credit cards cost lots of money to use. It will amaze you, but a person that borrows 5 grand in a year and then pays off the minimum balance will be paying off the debt for over 10 years and with significant interest. In many cases it can cost you twice as much for the item once interest costs are added on.

2

Understand that many people think that it is necessary to become deep in debt in order to build credit. This is not true. Always be responsible with your credit cards. You can build a very decent credit history with just one or two credit cards over the years. You don’t need to take out every conceivable loan in order to show creditors that you can pay them back on time. In fact, too many credit cards or loans can work against you.

3

Be wise to not really owning the cash. Credit cards give the user the illusion of being able to afford an item when in fact the opposite is true. Just because you are carrying around an unsecured loan of $5K does not mean that you should spend it on luxuries. If you are impulsive then you will find that credit cards can be your worst enemy. Never spend the balance on your credit cards for items that you know you won’t be able to pay back in the short term. Only use credit for convenience or when an emergency arises.

Article Info

wikiHow is a “wiki,” similar to Wikipedia, which means that many of our articles are co-written by multiple authors. To create this article, 11 people, some anonymous, worked to edit and improve it over time. This article has also been viewed 16,443 times.